THE BLOG
12/03/2014 11:11 am ET Updated Feb 02, 2015

5 Things High Net Worth Individuals Need To Know About Medical Marijuana

Marijuana is a "hot" topic at the intersection of medical technology and science research but at the cross roads of some difficult social change. This will certainly cause some disruption as the efficacy and safety of medical marijuana for many medical conditions has now been validated. Clouding the issue (pun intended) is medical marijuana vs. recreational marijuana. Most people draw little distinction between recreational and medical marijuana, placing both in the same illegal category. In most cases, due to current federal law, you'd be right. Yet twenty-three states have passed medical marijuana legalization laws.

I hope to "enlighten" my readers on what the business of medical marijuana looks like. What are the 5 most important things to know? For this piece, I will put aside my ideas on recreational activities or even some jokes as this is a seriously important industry that deserves your attention.

So let's take a look at what's going down in the world of medical marijuana, and what investors need to know:

1. There are proven medical benefits of cannabis (no inhaling required)

Today's marijuana is not your father's, as scientists are extracting the therapeutic qualities of cannabis and providing new ways to deliver it without the intoxicating effects of smoking or eating it. Chet Billingsley, CEO of Mentor Capital, Inc (MNTR) an investment company that invests in cannabis related companies, explained it to me: "We think it is of first importance for our medical marijuana investors to know with confidence that, as a medicine, cannabis works. It relieves pain because the grape-cluster-shaped THC and CBD marijuana molecules fit into and block the pain receptor sites CB1 and CB2. Cannabis is often preferred for chronic pain because it avoids the constant "loopy" feeling that comes with long-term opiate use. Parents see that cannabis similarly slows down the buildup and cascade of nerve signals that may cause seizures in their children and can also soothe shaking diseases afflicting their grandparents."

2. The investment opportunities are budding

One of most well-known firms that has a cannabis based business is GW Pharmaceutical (GWPH) According to self-proclaimed cannabis analyst, Alan Brochstein , he believes that GW Pharmaceuticals is "a Rolls Royce of companies in this space, a true medical company." They have developed more than 5 dozen cannabinoids. Other firms like INSYS (INSY) are spending their time on large potential markets like chemotherapy patients who will use their products to fight nausea and vomiting that often accompanies these life-saving treatments. Still other firms, like NEMUS BioScience, are researching novel ways of drug delivery for cannabis products to minimize risk from smoking and assure standard dosage through new ways of drug delivery methods.

According to Billingsley, in 2014, $1 Billion in medical marijuana medicine will be legally sold and dispensed by state-licensed dispensaries. So when and if it's approved at the federal level, according to GreenWave Advisors, the market will likely explode into a $35 billion industry. This is a development to watch - and one with many upside opportunities. But right now it feels like a green rush, so be careful you don't get caught up in the weeds.

3. There is a difference between medical marijuana and pharmaceutical cannabis

Medical marijuana is a term that suggests any aspect of the plant's real or imagined medicinal value, but there are companies developing cannabis-derived drugs using conventional FDA regulatory routes. The term, pharmaceutical cannabis is what the industry is using to indicate the cannabis-derived drug has been through a rigorous regulatory, safety and efficacy approval process.

While access to cannabis might work for a given condition, you may not have access through a medical dispensary in your state. I guess you can self-prescribe for now but we'll see if the industry makes it a joint effort. Disclosures here.

4. State versus federal medical marijuana legalization

Since under federal law, cannabis is a schedule 1 drug (classified as illegal with no medical value), states are passing medical marijuana legislation without clinical trials and without identifying specific indications (FDA approved uses). That federal versus state legality conflict is causing a lot of confusion, and will need to be resolved in order to protect patient safety.

More, because cannabis is schedule 1, the U.S. Drug Enforcement Agency (DEA) has a say into FDA approval (unlike other prescription drugs) and all indications are that the DEA is not cannabis friendly - even medically. So that means federal approval is under the influence of the DEA.

5. High profile experts are changing their stance on Medical Marijuana

Among the most notable and vocal, Dr. Richard Besser and Dr. Sanjay Gupta, were vehemently opposed to legalizing medical marijuana, but have recently flipped their stance after learning more about the issue. Both Dr. Gupta and Dr. Besser have both come out publicly to apologize for their earlier positions.

Dr. Besser explains, "I went into this story feeling that I don't think marijuana should be legalized. But I came out of this story thinking, actually, I was wrong. There is a strong case for legalizing marijuana and regulating it to keep it away from kids."

So at least in terms of using cannabis for medical reasons, the medical experts are increasingly pushing for federal legalization. Federal legalization will create a structure, and distribution mechanism to bring drugs to market more quickly and with uniform safety standards. That means there is a high probability that cannabis will become legal to help treat diseases like glaucoma, multiple sclerosis and help with side effects like nausea and chemotherapy for the myriad of cancer patients treated each year.

Brendan Kennedy, CEO of Privateer Holdings, is leading the charge in the private equity space. He is quoted recently on his mission to change the public perception from Cheech and Chong, White Castle, and Doritos to real medical benefits for suffers. "Every time we see those clichés, we think it's hurtful to a cancer patient suffering the side effects of chemotherapy, or the mother or father of a child with epilepsy."

If cannabis becomes legal for medical reasons at the federal level, there will be many opportunities for investors. And like many investments today, while returns still matter, some investors are focused on the social change that pot legalization brings. This means that this conversation will move to the mainstream pretty quickly, even the media publication "High Times" has created a capital fund. Yes, you must be an accredited investor-and no, it's not available on the street corner.

No matter your personal view on the situation, national perception of cannabis has moved into an active conversation. This conversation is happening among a diverse demographic- baby boomers, next gen, investors, patients and entrepreneurs. Where there is smoke, there is money. Just like any other early stage investment, there will be a plethora of entities and entry points for HNW individuals in equity markets, private deals, funds, crowdfunding, etc. This means that investors must spend time learning and understanding the investment vehicles, business opportunities and potential risks before they decide their own appetite for pot.